Patrice Ract Madoux
Président de la CADES

Under the chairmanship of Benoît Jolivet, CADES has become one of the most reputable issuers within the euro zone. Its policy for the year 2000 will be a continuation of actions initiated by Benoît Jolivet and his teams.

This year, against a background of rising interest rates, CADES has continued to do its utmost to ensure that investors are able to manage their positions in its securities in the best possible conditions. As part of this strategy, the conversion into euros of several issues denominated in euro zone currencies was successfully achieved. Today, three quarters of CADES' debt (76%), i.e. 25 billion euros, is denominated in euros.

The changeover to the euro has enhanced CADES' credit rating. Since the beginning of the year, its issue maturing in 2004 has proved particularly popular with investors, and on several occasions CADES has increased the liquidity of the issue in euros maturing in July 2004, which was launched in April 1999, through additional contributions.

CADES also arranged an inflation linked bond issue (CADESi), maturing in 2013, thereby confirming its presence along the entire yield curve. This was the first issue of its kind in the euro zone since the launch of the French government's OATi in September 1998, and reflects CADES' commitment to remain highly aware of market needs and to find imaginative ways of meeting them. The CADESi issue has enabled CADES to improve its assets and liabilities management, and offers investors effective protection against a possible rise in inflation.

In forthcoming months, CADES should continue to benefit from a combination of positive factors. The French government has confirmed its objective of balancing the Social Security books by fiscal year 2000. Economic indicators in France and its main partner countries are favourable. In this context, CADES' policy will be to strengthen its positioning on the euro market through the active management of its debt and through ensuring the liquidity of its issues. As in 1999, CADES' yearly financing requirements should stand at between 4 to 5 billion euros.

Finally, CADES will continue to make every effort to optimise communication and information to investors and all market operators, for the sake of ever greater transparency.

Appointments  

On 9 September, Patrice Ract Madoux was appointed Chairman of CADES by presidential decree. A former member of the Board of CNP Assurances, Patrice Ract Madoux succeeds Benoît Jolivet, who had been Chairman of CADES since it was established.

On 3 November, Marc Laffineur, the Member of Parliament for the Maine-et-Loire department of France, was appointed Chairman of the Supervisory Board of CADES. He succeeds Jacques Oudin, Senator of the Vendée region, who had held this post since CADES was established. Mr. Oudin will remain a member of the Supervisory Board. .

A high credit rating   

CADES has been awarded the highest ratings, both long and short term, by Standard & Poor's, Moody's and Fitch IBCA:

* AAA/A1+ * Aaa/P1 * AAA/F1+

CADES' credit rating has been further enhanced by the favourable prudential treatment of its issues: like those of sovereign issuers who are members of the OECD, its issues benefit from a 0% Cooke ratio weighting. They also have no effect on the risk-asset ratios of mutual funds and insurance companies.

The year 2000 conversion

CADES has completed the preparation of its IT systems for the year 2000 conversion and has carried out a series of successful tests proving its readiness for this important date.

Joining the capital markets department

Ms. Rim Tehraoui, who graduated from ENSAE and IEP Paris, joined the capital markets department last September.

Results for the 1998 financial year 

As forecast, the yield from the CRDS tax (Contribution to the Repayment of Social Security Debt) amounted to FRF 26.5 billion (4 billion euros). CADES' gross debt reached FRF 224.5 billion (34.2 billion euros) and its issuance programme, which focused on the first half 1998, totalled FRF 55.8 billion (8.5 billion euros).

The negative net equity stood at FRF 215 billion (32.8 billion euros) compared to FRF 131.6 billion (20.1 billion euros) for the previous year.

This difference is explained by the transfer to CADES on 1 January 1998 of an additional FRF 87 billion (13.2 billion euros) debt. The increased financial burden due to this additional debt reduced the result for 1998 to + FRF 3.5 billion (+ 538 million euros).

When certifying the accounts, CADES' Board of Directors emphasised that the cautious discounted cash flow forecasts confirm that the net debt should be paid off by 31 January 2014.

For fiscal 1999, the estimated CRDS yield should amount to FRF 27.5 billion (4.2 billion euros).

CADES' issuance policy in 1999 

Despite a less favourable context due to the rise in interest rates since the beginning of the year and a rate of more than 150 basis points on the
10-year OAT, CADES has succeeded in maintaining the cost in present value terms (4.86%) and the duration (4.6 years) of its debt. It has also widened its investor base and added to its product range, with the launch of CADESi. 1999 has seen a reduction in CADES' debt repayment programme: total issues since the beginning of the year represent 4.5 billion euros (FRF29.52 billion), less than in previous years. In future, CADES' financing needs should stand at around 4 to 5 billion euros per year.

Increase in the July 2004 issue
The 2004 issue has been increased several times since the beginning of the year. In January, CADES organised an initial issue of 1.5 billion euros, maturing on 12 July 2004 and carrying a coupon of 3.375%, offering a spread of 12 basis points above the benchmark BTAN. A month later, it was increased to 2 billion euros through an additional issue of 500 million euros, offering a spread of 11 basis points above the benchmark BTAN. The issue, which represents a benchmark on the market, was increased again in October with an additional 500 million euros, raising the overall issue to 2.5 billion euros.

Medium term debt programme
The flexibility of the MTN programmes means that they provide an excellent alternative to short term products. CADES will therefore maintain its international medium term debt programme (EMTN) of 10 billion euros as well as its domestic programme (BMTN) of FRF10 billion. CADES began the year with an issue of USD500 million due January 2004, carrying a coupon of 5.125%, which took the form of a private placement.

Positioning on the euro market and liquidity
Following its conversion programme, two-thirds of CADES' debt is now denominated in euros. Six of CADES' bond issues represent over 2 billion euros each: the 5.5% bond issue maturing 25 April 2002, the 3.5% bond issue maturing 12 July 2004, the 6% bond issue maturing 25 July 2005, the 6.25% bond issue maturing 25 October 2007, the 5.125% bond issue maturing 25 October 2008 and the 5.25% bond issue maturing 25 October 2012. These liquid issues are benchmarks, and reinforce CADES' standing amongst the leading issuers on the euro market.

CADESi meeting investment expectations:
CADES launched an inflation-linked bond issue, CADESi, the first of its kind in the euro zone since the French government launched the OATi in September 1998. The indexation principle for CADESi is identical to that of the OATi, based on the national statistical agency's consumer price index (excluding tobacco), which represents 98% of the overall price index. Due to strong demand from the market, the issue was increased from an initial 1 billion euros to 1.5 billion euros. Carrying a real coupon of 3.15%, maturing 25 July 2013 and offering a spread of 14 basis points above the OATi, the CADESi issue proved a real success among bond investors: issued on the basis of a re-offer price of 99.8%, the paper was traded up to 103.35%.
While achieving optimal asset and liability management, CADES also offers investors with the issue an opportunity to hedge against rising inflation.

Expansion of the investor base beyond the euro zone
CADES has continued to implement an international investment strategy in order to diversify its investor base. Thus, it arranged a non-euro zone currency issue of USD500 million at 5.125%, maturing January 2004. CADES will continue to meet investors both in Paris and elsewhere through its roadshow programme.

Changes in debt structure at November 30, 1999

The quotation of CADES' issues   

Investors have at their disposal a variety of media for obtaining information on CADES' various issues. On the internet, CADES' web site permanently displays the latest data pertaining to its main domestic issues quoted in Paris. All the major agencies quote CADES' securities on their electronic servers (Reuters, Telerate, Bloomberg, Fininfo, etc.).

CADES benchmark issues overview*

CADES inflation linked bond (CADESi)

Extract from Reuters page <CADES02> 23 Nov 1999 10:31:13

* Indicative prices on 23rd November 1999
** Break Even Inflation